Global warming, oil imported from terror-supporting countries, food shortages and rising food prices. All of which we profess to be against or trying to remedy. Yet we continue to place a $.54 per gallon tariff on Brazilian ethanol made from sugar cane to "protect" our corn based ethanol even though (1) Brazil is our friend and (2) sugar based ethanol is way more efficiently produced in Brazil than what we can do with corn here. Yet we continue to cynically and despicably talk on the side of the angels but act on the side of evil. Some of our presidential candidates are also cynically proposing a gas tax holiday to help with high prices (or to help avoid reality in an election year?)

In our government, lying and pandering are in our so commonplace that I don't think anyone in Washington really gives any of this a second thought. The only way I see to change this mess to (1) have national primaries (2) abolish the Senate.

Friday, May 02, 2008

All is not well in the USA. Gas and food prices are high, our presidential candidates are less than scintillating, the Suns are out of the playoffs, and our educational system is failing a significant chunk of our citizens.

But maybe, just maybe, common sense will start to prevail and the hysteria over "financial meldowns" and "deep protracted recessions" will now quiet down at least a few decibels.

Many troubled financial firms have re-capitalized and financial markets seem to have stabilized. A recession of any type has not, to date, been uncovered. Job losses continue but the April numbers are quite a bit less bad than the previous two months. The unemployment rate is 5%.

America has a lot of problems, but a deep extended recession does not appear to be one of them. Somehow we (me included) consistently underestimate the resiliency of our still mainly free market economy.

Of course one big downside to a lessening of the business cycle apocalypse meme is that it will lead directly to an equi-proportionate increase in inequality hysteria.

This is a direct application of Will Self's "quantity theory of insanity" which posits that whenever insanity falls in one dimension, it rises in another.

Thursday, May 01, 2008

Two Southern Illinois University professors have settled a lawsuit they filed after the state said they flunked a mandatory online ethics test because they finished too quickly.Marvin Zeman and Walter Wallis will both get credit for completing the test they took in 2006. The state Office of Inspector General invalidated their test results, saying the two did not spend enough time on the ethics material.“I’ve taken this test now three or four times. It was only (in 2006) that there was this nonsense of a time limit,” said Zeman who is president of the faculty association at SIU in Carbondale.State employees are required to take an annual ethics test that consists of readingmaterial followed by a series of questions. There are 80-90 computer screen pages of material to review.

Now, what would Angus do, if he were told he had cheated on an ethics test?

there's one guy I'd like to thank he signs the checks and leaves them blank he's the one he says you don't have to walk a plank the game is rigged, go fig your slide show tanked and your flagship sank

so we're taking all our myths to the bank so just don't forget who to thank we're taking our myths to the drinking a fifth to the we're taking all our myths to the bank

if you could just do him this favor although it might involve child labor join his entourage give him a foot massage from Star Search to the Philharmonic he'll get you there with Hooked on Phonics he's the one to know doesn't matter if you blow - no no

deals in commodities of the abstract sort buys them in bulk but sells them short talent, genius. love even signs of affection he floods the market there's no price protection and when his master plan is unfurled there stands a handsome bid on the weather systems of the world

Wednesday, April 30, 2008

Below is the final for the Aldrich-Munger taught course, "American Values and Institutions," PS112A.

The kids had to answer some three of the five questions, their choice.Afterwards, three kids had editorial comments:a. "I hate you, and I always will."b. "I can't feel anything, including my fingers."c. "Somewhere in the second hour of the exam, I was struck by just how much I had learned this semester."

The exam, for your amusement:

1. Assume that you are a member of a three person committee with the following preferences over the set of outcomes (x, y, z):

(First,Second,Third) Rank in preference orderPerson I (you) x y z

Person II y z x

Person III z x y

a. This committee decides by comparing two alternatives (akin to a bill and a proposed amendment) with the majority rule winner in the first vote pitted against the remaining alternative. The majority winner from that second vote is the overall winner. Remembering that you are "Person 1," suppose you got to choose which two alternatives are pitted against each other, with the winner in that comparison then being voted up or down for final passage against the remaining alternative that goes against the winner. What agenda, or sequence of pairwise comparisons, would you choose?

b. Now, suppose that you suddenly become, through some odd transubstantiation of mind/soul, Person II. How would you vote, assuming that the agenda you laid out in your answer to a is held fixed? What would be the outcome? That is, which alternative should win?

c. Finally, suppose that the transubstantiation happens again, and your mind/soul returns to its original body, Person I. Having inhabited Person II briefly, you know what Person II is going to do. Do you change the agenda you picked for item a above?

2. The political thought well-known to the American Founders had a variety of perspectives on the nature of the state, and the obligations of the individual to the state. Summarize what you see as the primary thinkers in the "collectivist" (focusing on the state, and the federal government) tradition in the political thought before 1830, and the primary thinkers of the "individualist" tradition (focusing on private rights, and local government). Make sure and mention at least two of each. Which set of values, collectivist or individualist, does the American Constitution come closer to embodying?

3. Consider the following analogy: Condorcet's Paradox is to Majority Rule as Arrow's Theorem is to the Set of All Voting Rules. Can we really say that one set of rules is better than another, given this problem? Is the American system of elections, with two major parties, better than other systems because it is more stable? Or is it rigid? How could you evaluate a political system, except by comparing it to other systems in terms of stability and survival? How does the U.S. system solve the problem of instability, using a "first past the post" electoral system, and "one issue at a time" procedures in the legislature?

4. Property. What is the role of property, and protection of property rights, in the institutions created by the American Founding? What is the basis of the claim of individuals to "own" property? How did the Founders adapt this notion of property to extend to the ownership of other human beings?

5. One of the key problems that any set of institutions, or any social movement, must overcome is the collective action problem. In many of the things we read, including Aldrich's "Why Parties?", King's "Letter from a Birmingham Jail," Walker's "Appeal," and others, the collective action problem was central to the concerns of the writer. And, collective action problems in taxation and military coordination were central to the change from the Articles of Confederation to the Constitution. Why is the collective action problem so hard to solve? Is the only solution to the collective problem to use "Madisonian" institutional incentives? Or is it possible to cajole and persuade people to act collectively on their own, as a "Rousseauvian" approach might suggest?

Our text today is a phrase commonly uttered by:

Alcoholics, Pyromaniacs, Philanderers, and the US Fed Chairman?

Don't get me wrong, I think Bernanke and the Fed have done a great job addressing the credit freeze by expanding liquidity, taking shakier paper for collateral, opening the discount window wider, and yes even by having a hand in the Bear-Sterns sale (though this last achievement I agree is debatable).

However, the rate-cutting is just plain out of hand. The dollar is shot, commodity prices soaring, inflation is over 4%, the markets have been calmed, but the Fed is gonna cut the funds rate again.

Abstract:We disentangle constituent and partisan influences in Congress by taking advantage of a largely unexamined institutional setting—lame-duck sessions. Lame-duck sessions of Congress are comprised of exiting members, who are freed from both constituency and party constraints, and returning members, who face a significantly reduced constituency constraint but a still strong party constraint. Comparing exiting and returning House members thus provides meaningful leverage in assessing the constraining influence of party. In the regularly occurring lame-duck sessions between 1877 and 1933, exiting House members exhibited greater movement away from the median party position than did returning members, consistent with expectations regarding party influence. In addition, party leaders’ ability to apply pressure was significantly reduced in lame-duck sessions due to the presence of a large group of exiting members. Finally, majority-party leaders were able to exercise negative agenda control in lame-duck sessions when their party maintained control of the next Congress, but they often acted to roll their own party members (an occurrence we dub a “strategic roll”) when their party lost control of the next Congress, as a way to minimize policy loss. In the post-1933 era, after the passage of the 20th Amendment, lame-duck sessions (those portions of the second session that stretch beyond the November elections) are more accurately characterized as extensions of regular sessions, with party leaders’ ability to pressure members and exercise negative agenda control remaining virtually constant across sessions. Lower levels of turnover in the modern era appear to contribute to an enhanced ability of majority-party leaders to wield influence.

Abstract:Evidence on the relationship between political contributions and legislators' voting behavior is marred by concerns about endogeneity in the estimation process. Using a legislator's offspring sex mix as an exogenous variable, we employ a two-stage least squares estimation procedure to predict the effect of voting behavior on political contributions. Following previous research, we find that a legislator's proportion daughters has a significant effect on voting behavior for women's issues, as measured by score in the "Congressional Record on Choice" issued by NARAL Pro-Choice America. In the second stage, we make a unique contribution by demonstrating a significant impact of exogenous voting behavior on PAC contributions, lending credibility to the hypothesis that Political Action Committees respond to legislators' voting patterns by "rewarding" political candidates that vote in line with the positions of the PAC, rather than affecting or "bribing" those same votes -- at least in this high profile oolicy domain.

In the latest salvo in a more than decade-old government campaign against Barbie, Prosecutor General Ghorban Ali Dori Najafabadi said in an official letter to Vice President Parviz Davoudi that the doll and other Western toys are a "danger" that need to be stopped.

"The irregular importation of such toys, which unfortunately arrive through unofficial sources and smuggling, is destructive culturally and a social danger...The displays of personalities such as Barbie, Batman, Spiderman and Harry Potter ... as well as the irregular importation of unsanctioned computer games and movies are all warning bells to the officials in the cultural arena,"

Najafabadi said Iran is the world's third biggest importer of toys and warned that smuggled imports pose a threat to the "identity" of the new generation. "Undoubtedly, the personality and identity of the new generation and our children, as a result of unrestricted importation of toys, has been put at risk and caused irreparable damages."

I would like to make three observations in closing:

(1) what the heck is that guy gonna do with that doll?

(2) I'm pretty sure Iran is NOT the world's third largest toy importer

Would you rather earn $50,000 a year while other people make $25,000, or would you rather earn $100,000 a year while other people get $250,000? Assume for the moment that prices of goods and services will stay the same.

Surprisingly -- stunningly, in fact -- research shows that the majority of people select the first option; they would rather make twice as much as others even if that meant earning half as much as they could otherwise have. How irrational is that?

This result is one among thousands of experiments in behavioral economics, neuroeconomics and evolutionary economics conclusively demonstrating that we are every bit as irrational when it comes to money as we are in most other aspects of our lives. In this case, relative social ranking trumps absolute financial status. Here's a related thought experiment. Would you rather be A or B?

A is waiting in line at a movie theater. When he gets to the ticket window, he is told that as he is the 100,000th customer of the theater, he has just won $100.

B is waiting in line at a different theater. The man in front of him wins $1,000 for being the 1-millionth customer of the theater. Mr. B wins $150.

Amazingly, most people said that they would prefer to be A. In other words, they would rather forgo $50 in order to alleviate the feeling of regret that comes with not winning the thousand bucks. Essentially, they were willing to pay $50 for regret therapy.

Regret falls under a psychological effect known as loss aversion. Research shows that before we risk an investment, we need to feel assured that the potential gain is twice what the possible loss might be because a loss feels twice as bad as a gain feels good. That's weird and irrational, but it's the way it is.

Human as it sounds, loss aversion appears to be a trait we've inherited genetically because it is found in other primates, such as capuchin monkeys. In a 2006 experiment, these small primates were given 12 tokens that they were allowed to trade with the experimenters for either apple slices or grapes. In a preliminary trial, the monkeys were given the opportunity to trade tokens with one experimenter for a grape and with another experimenter for apple slices. One capuchin monkey in the experiment, for example, traded seven tokens for grapes and five tokens for apple slices. A baseline like this was established for each monkey so that the scientists knew each monkey's preferences.

The experimenters then changed the conditions. In a second trial, the monkeys were given additional tokens to trade for food, only to discover that the price of one of the food items had doubled. According to the law of supply and demand, the monkeys should now purchase more of the relatively cheap food and less of the relatively expensive food, and that is precisely what they did. So far, so rational. But in another trial in which the experimental conditions were manipulated in such a way that the monkeys had a choice of a 50% chance of a bonus or a 50% chance of a loss, the monkeys were twice as averse to the loss as they were motivated by the gain.

But....why not educate people about what it means to be rational? Why take the vice of envy and elevate it to the status of a virtue, and call it a taste for "equality"? Equality is nearly always inequitable. The fact that our stone age minds (and it appears that Hillary Clinton has bigger stones than the rest of us) make us value our own relative position doesn't make it right.

Feel free to double my income, and multiply Angus's by 10, any time. Though I would probably want him to pay for lunch then, I admit.

"When I was in high school, I landed a summer internship with Arizona Senator Dennis DeConcini. (One of my Hebrew School teachers was his office manager. It really is all about who you know.) A big perk for the interns was getting to have lunch with famous Arizonans - including John McCain. It was 1990 and one of the big issues on the Hill that summer was a proposed constitutional amendment to outlaw burning the American flag. McCain was a staunch supporter of the proposed amendment and so, during the lunch, I asked him why he supported it. I guess McCain figured I didn't support the amendment (I didn't), because his jaw clenched, his face turned red, and he launched into a tirade. This all happened 16 years ago, so my memory is a bit fuzzy on the specifics of what he said, but the gist of it was that he had served his country, I hadn't, and therefore I could never understand what the flag meant and I had no right to question him about it. I think I tried to interject something about how I was just 16 and therefore not yet eligible to serve in the military, but there was no stopping McCain, and he continued to browbeat me for my lack of service and patriotism." [Zengerle, TNR]

If you were a REAL patriot, son, you would have lied about your age. Service to das Vaterland is really the only metric of worth. Ask not why John McCain doesn't believe in free speech, ask what YOU can do for your country.

Sunday, April 27, 2008

I was doing a live television interview. An earnest young woman had a question: "I'm a student, and I have a lot of bills. I'm finding it harder and harder to buy gas for my car. As governor, what would you do to cut gas prices for students like me?"

This question is common, but still my mind raced: What could she possibly mean? No one, not the president, not even Coach K or ol' Roy, can control gas prices. Further, as a matter of policy, our gas prices are, if anything, too low. The only way people are going to cut back on carbon emissions, and use less oil, is if gas prices rise and we all have real incentives to conserve.

So, I gave my usual answer: "Thanks for the question! I think our real problem isn't gas prices. It's gravity. It's not fair that I can't dunk a basketball, since I'm 6 foot 1. And lots of other North Carolinians are short, and couldn't dunk if they had a trampoline. So, I'm proposing a selective suspension of gravity, with short or non-jumping people getting the biggest boost."

OK, I didn't really say that, but I wish I had. Because the idea of legislating gravity is just as sensible as suspending the laws of supply and demand in fuel markets.

Instead, the caller got my sympathy for her plight, and my hope that she found a way to pay her bills. I also hinted that higher fuel prices would have a positive effect, leading folks to conserve more. Later, commenters on the TV station's Web site suggested I was "insensitive." One writer accused me of having "never had to worry about money yourself."

My responses: First, when I went to college, it's true that I didn't have to worry about high gas prices. I was too poor to own a car.

Second, on a broader level, the young woman was falling into a strange logical trap, believing that some mythical being called "the state" was somehow responsible for her money troubles. Fortunately, this kindly giant also happened to have enough money lying around to help pay her bills.

Our delusion about "the state" was first noted by French economist Frederic Bastiat. "The State is the great fiction through which each of us tries to live at the expense of all of us," he said. In other words, the state taxes each of us for revenue, then gives each of us back more than we paid in.

Of course, it's true that anyone would be better off if the state would give us other peoples' money. In the young woman's mind, the fact that she had less money than she wanted meant that someone should give her more. In the commenters' minds, the fact that I did not credit this premise meant that I was insensitive and removed from the needs of real people.

That's nonsense. The main need of real people right now is to find a way to increase the fuel efficiency of their transportation. High prices reflect increased scarcity. We need to react quickly, not slow things down by forcing prices downward. I'm not a fan of gas taxes, or other excise taxes as a way of coercing behavior the government happens to admire. But I'm also opposed, for the same reasons, to subsidies that keep gas prices artificially low, and enable behavior we abhor.

The U.S. has huge corporate tax giveaways built into our tax codes, in the form of oil depletion allowances and accelerated depreciation on capital stock in drilling and exploration. And thousands of our young men and women are fighting, and dying in a war in a region whose only strategic significance is its hold on our oil supply.

So, to the young lady who called in, and to all the rest of you wanting to know how the state is going to support your addiction to driving inefficient, polluting moving mountains of iron and plastic: Get over it. There is nothing anyone can do. In fact, there is nothing anyone should do.

There is something you can do, though. Trade in your gas guzzler on a more efficient car. Change your driving habits. Ride a bike. Or don't. But then don't ask how other taxpayers can be forced to support your senseless, selfish addiction. There is no constitutional right to spend other peoples' money for your gasoline expenses.

Besides, it wouldn't work anyway. We might as well vote to reduce gravity.

Mike Munger is chair of political science at Duke University. He is the Libertarian Party nominee for governor in the 2008 election.

The "free trade reduces prices" fallacy, yet again. This time the culprit is Tyler Cowen. In his column for the New York Times today, Cowen argues that freer trade in food commodities such as rice would boost global supplies and help reduce prices. He is probably right about the first, but not about the second. The effect of freer trade on domestic food prices depends on whether a country is a food importer or exporter. Freer trade would reduce prices of food (relative to other prices) only in countries that are food importers. Food exporters would experience a rise in the relative price of food, and there is simply no way of escaping that reality.

The economics of what Rodrik is saying are indisputable: if we go from no trade to free trade, the exported good's relative price will rise in the exporting country and fall in the importing country.

However, it's not at all clear to me that Tyler ever says free trade lowers prices for everyone. The closest he comes is in the first paragraph:

Rising food prices mean hunger for millions and also political unrest, as has already been seen in Haiti, Egypt and Ivory Coast. Yes, more expensive energy and bad weather are partly at fault, but the real question is why adjustment hasn’t been easier. A big problem is that the world doesn’t have enough trade in foodstuffs.

So, maybe you could interpret that as being wrong. However, it surely does not say "trade lowers the price of the traded good for everyone", which is the error Rodrik claims he is making.

For me, it's too vague to make any claim about what economic theory or fallacy is underlying the paragraph. As it is the opening of an op ed, I suspect its main intent is to get our attention.

The article is actually about how the lack of free markets, market friendly government policies, and supporting infrastructure in a lot of developing countries can be extremely counterproductive in an ever more interconnected world, using rice as an example.

An increasing percentage of the world’s production, including that for agriculture, comes from poor countries. Over all, that’s good for rich countries, which can focus on creating other goods and services, and for the poor countries, which are producing more wealth. But it can slow the speed of adjustment to changing global conditions.

For example, if demand for rice rises, Vietnamese farmers — who remain shackled by many longstanding regulations of communism — aren’t always able to respond quickly. They don’t even have complete freedom to ship and trade rice within their own country.

Poorer countries also tend to be the most protectionist. To make matters worse, about half of the global rice trade is run by politicized state trading boards.

The reality is that many of today’s commodity shortages, including that for oil, occur because ever more production and trade take place in relatively inefficient and inflexible countries. We’re accustomed to the response times of Silicon Valley, but when it comes to commodities production, many of the relevant institutions abroad have only one foot in the modern age. In other words, the world’s commodities table is very far from flat.

Many poor countries, including some in Africa, could be growing much more rice than they do now. The major culprits include corruption in the rice supply chain, poorly conceived irrigation systems, terrible or even nonexistent roads, insecure property rights, ill-considered land reforms, and price controls on rice.

The ability of a country to grow rice depends not just on its weather, but also on its institutions. Burma, now Myanmar, was once the world’s leading rice exporter, but it is now an economic basket case and many of its people go hungry.

My own criticism of Tyler's piece would rely less on Heckscher-Ohlin and more on Pritchett: In terms of helping the world's poor, freer trade is a drop in the bucket compared to allowing increased labor mobility.

If you live in a country with "corruption, non-existent roads, insecure property rights and price controls" free trade is not going to help you. Leaving will help you. The best thing the rich countries could do for a Haitian or Egyptian would be to let them come and work in the rich world.